National Broker Review: Flying High?

After two years of intense upward pricing adjustments and a drought of coverage availability – which sparked a period of intense public outrage that like blood in the water drew in the political sharks – the Canadian property and casualty insurance industry appears to be back on course with stable pricing and a new keenness to write business. For independent brokers, who bore the brunt of consumer ire generated by the volatile business conditions while at the same time having to contend with fewer and more demanding markets, the difference between today’s marketplace and that of 12 months ago is akin to “night to day”.

Personal lines pricing in Ontario has dropped by about 12% and competition in commercial lines has heated up significantly, brokers report. Insurers are definitely open for business, is the overall consensus. Yet, the marketplace remains under the “wait and see” stress of determining the cost effectiveness of the auto insurance regulative reforms as well as pending or possible legislative moves – not least of which could be draconian rules pertaining to broker remuneration disclosure.

British Columbia’s brokers are rejoicing a much more vibrant commercial insurance marketplace, to the extent that there is even concern that insurers are going too far too soon. Yet, brokers remain disappointed that the provincial government’s attempts to “level the competition playing-field” has not attracted the attention of the major insurers. The province’s brokers also face regulative market changes that could subject the distribution of insurance to abusive tied-selling practices and competition from credit unions.

While coverage availability has increased in Alberta, in both personal and commercial lines, price reductions have been moderate. Brokers describe the marketplace as “stable”, but admit that it is too soon to tell whether the province’s auto reforms will provide the necessary claims cost savings. Auto insurance remains “highly political”, they say, and further regulative changes are likely after the provincial Auto Rate Board completes a market review in October of this year.

Quebec’s small to medium-sized business sector is benefiting from renewed insurer interest, brokers say, although pricing in general across both personal and commercial lines has remained mostly stable. However, the province’s brokers lament yet further consolidation of the general insurer pool, and also wait with baited breath for the outcome of a government investigation into remuneration arrangements and disclosure requirements.

Auto insurance reforms in Atlantic Canada, specifically New Brunswick, Nova Scotia and Prince Edward Island where a $2,500 cap has been introduced on minor injury pain & suffering awards, has seen a dramatic improvement in coverage capacity as well as double-digit reductions in premium rates. The result has seen the lifting of provincial rate freezes. However, the region remains fairly “politically sensitive” with opposition parties steadfast in calling for state-run auto insurance systems. System “work throughs”, such as depopulation of the high-risk Facility Association (FA) also remain an issue in Nova Scotia.

Under such precarious conditions underpinning the insurance marketplace, can brokers firmly hold onto the belief that the “worst of days” are truly behind the industry? That stability will rule the land henceforth? Brokers say they are well aware that the insurance industry’s “sins of the past” will likely repeat – the question being to what extent and just how soon. In the meantime, they plan to take full advantage of today’s fair winds.

ONTARIO’S FORGIVENESS

Insurers are signing on new brokers in Ontario, and the number of markets per broker has increased this year, observes David Hare, president of the Insurance Brokers Association of Ontario (IBAO). “The tight market is definitely history,” he comments.

Hare notes that personal lines pricing has already declined by about 12% from a year ago, with commercial cover renewals occurring at either moderately lower or flat rates. Insurers, however, are aggressively pursuing new commercial business, with some quotes coming in 25% to 35% lower, he says. “Which causes concern that we [the industry] may be repeating the mistakes of the past. Most insurers are looking for growth, and are definitely a lot more competitive.”

With the auto insurance regulative reforms still in infancy, the coming 12 months will be the litmus test in determining how effective the measures have been in reducing claims activity, Hare says. However, early evidence from the marketplace suggests that claims frequency is beginning to rise again, he notes. But, the reduction in auto pricing and greater availability of coverage has seen a marked reduction in consumer complaints received by brokers, he adds, which has also resulted in higher retentions. “When consumers see rate reductions and coverage availability, then they are unlikely to go shopping.” That said, Hare stresses the need for further investment in repairing the insurance industry’s tarnished public image.

While the province’s proposal of introducing a basic, “no frills” auto product appears to have disappeared from the radar screen – brokers were opposed to such a measure due to the complexities it would introduce as well as the potential of insureds being left under-insured – there is a serious move to bring in a compulsory “accident forgiveness” endorsement to all auto policies, Hare says. The government recently requested the IBAO to provide feedback on its proposal, which essentially would give insureds a kind of “go free pass” on first accident claims. The government’s objective, he explains, is to overcome consumer concerns of submitting claims for fear of harsh premium rate hikes. The IBAO has recommended that the accident forgiveness endorsement should be limited to claims where the repair cost is below $1,000 and there is no cost to the insurer. Essentially, he points out, this would neutralize situations where insureds might report a minor claim but then decide to pay it from his/her own pocket and then later find out that by merely having reported to the insurance company that they have a higher risk claims history.

The other major regulative issue on the IBAO’s agenda is broker commission disclosure, Hare says. Working with the Insurance Bureau of Canada (IBC) and the Registered Insurance Brokers of Ontario (RIBO), the broker association recently implemented a self-regulated “disclosure protocol” regarding the ranges of commissions and contingent-type remuneration earned by brokers. Thus far, most brokers in Ontario have adopted the disclosure protocol, Hare notes. “So far, there has been little consumer response,” he adds, although there is reason for caution that if not all brokers adhere to the IBAO model that the provincial government could step in with legislation. “I certainly hope that the government doesn’t react with a legislated solution.”

B.C.’S DISAPPOINTMENT

“I think I’ve had one of the easiest years as [broker association] president – brokers are finally able to place business again, prices are stable, and some [commercial] business is even being renewed with [rate] reductions,” says Bryan Fitzpatrick, president of the Insurance Brokers Association of British Columbia (IBABC).

The province’s commercial risks were hit particularly hard in the last price firming cycle, Fitzpatrick observes, and this year has seen a significant return of interest by insurers to write new business across most classes. And, increased competition is being reflected in lower pricing, he adds. “I’m currently working on a renewal for a liability policy that the same insurer is quoting 43% less on its own rate.”

However, there remain sticky areas of the business, Fitzpatrick notes, with the tail of claims and litigation costs relating to the “leaky condos” debacle making placement of construction risks difficult and pricey. ‘Contractors have been hard hit by insurance [costs], ” he adds. Another factor causing some marketplace disruption is the new habitation value requirements brought in by insurers after the province’s mega forest fire losses. “This has caused some frustration,” he adds, as insureds suddenly find that their homes have been attached a much higher valuation.

Furthermore, Fitzpatrick says the really big issue differentiating B.C.’s property risks from other parts of the country is the potential of earthquake and the province’s “fire-following” rule that mandates that all fire losses are covered. “The big push this year is to address the fire section and multi-peril section of the Insurance Act,” he notes. A government review of the insurance legislation, planned for this year, is expected to ease exposures of insurers to fire-following from earthquake, which should make placement of earthquake coverage much easier, he adds.

The biggest disappointment for B.C.’s brokers is that attempts by the province’s Liberal government to encourage private insurer competition in the optional auto insurance marketplace by “leveling the playing-field” in how crown insurer – the Insurance Corp. of British Columbia (ICBC) – competes have not been overwhelmingly received by carriers, Fitzpatrick says. “The playing-field has now been leveled in the optional market, but there is not much interest from private insurers. I expect that the large insurers are holding off until there is complete open competition [in auto insurance],” he speculates.

ALBERTA’S SENSITIVITY

Auto insurance is still very much politically sensitive, states Jim Harris, president of the Independent Insurance Brokers Association of Alberta (IIBAA). The provincial government is not prepared to move from the issue until it is satisfied that rates are fair and that there is adequate coverage capacity, he notes.

As such, further regulative reform measures impacting price could be introduced to the auto product following a marketplace review by the province’s Auto Rate Board in October of this year, Harris says. “But, at the moment, I’d say we’re in a stable market.”

In fact, the government recently backed off from a mandatory rate reduction due to the fact that insurers had already filed lower prices. Harris confirms that there is definitely a greater willingness by insurers to write auto and that there has been a substantial migration of insureds from the high-risk pool into the general insurance fold. Harris says it is still too early to determine what cost-saving benefits might result from the latest round of regulative reforms to the auto product. “It will probably take 12 to 18 months to get a solid feeling [of the claims numbers].”

A legislative factor that the IIBAA is not overly enthusiastic of is the recent government announcement that it plans to allow state-owned insurance companies like ICBC and SGI Canada to enter the Alberta marketplace. To some extent, this keeps the concept of an Alberta government-owned insurer alive in the public’s eye. However, of greater concern, at least to brokers, is that the insuring public may expect the introduction of operators like SGI (which has expressed an interest in entering the Alberta marketplace) to provide the level of subsidized auto rates from their own home territories, Harris warns. “I think there is an expectation in the populace that government insurers will bring the same rates from their own territories. Clearly, this won’t be the case.” Brokers would prefer the government to allow the normal free market system to prevail, he adds.

The commercial side of the business has seen increased competition among insurers, Harris says, which has seen a reduction in rates. “I hope that the industry has learnt to be careful with long-term pricing so we are able to maintain market stability,” he notes. Overall, Alberta’s economy is experiencing a strong growth phase with vibrant growth in businesses. “Which is good for brokers and insurance companies. Brokers are reporting a lot more new business than two years ago,” he adds.

MANITOBA’S STABILITY

Since the fall of last year, the commercial insurance environment in Manitoba has definitely improved, says George Miller, president of the Insurance Brokers Association of Manitoba (IBAM). Overall, commercial business pricing is softening, particularly on new business, while coverage availability has increased, he adds.

Insurer interest in taking on new commercial business has even resulted in greater availability of cover for specific “high risk” areas such as U.S. liability exposure and certain professional liability segments. “This business can at least now be placed,” Miller observes. Otherwise, Manitoba did not experience the type of marketplace volatility that affected other provinces in personal lines. While auto insurance is government-run in Manitoba, the province’s personal property marketplace has remained consistently stable in pricing and coverage availability, he notes. In reviewing market conditions across all business lines, Miller says, “I think the marketplace in Manitoba will remain stable. I think [coverage] availability will expand even more, at least for the next year. I just don’t want to see any big [price] decreases or increases, because our credibility as brokers and the industry as a whole have been dented.”

QUEBEC’S CONCERN

Pricing and coverage availability in both commercial and personal lines has remained mostly stable, says John Morin, president of Morin, Elliott Associates Ltee. While there has not been much “down-sizing” of premium rates, the marketplace is experiencing robust demand for new business in the small to medium-sized commercial segment, which Morin surmises is due to the fact that general carriers are seeing this as an area under threat from direct writers. “There are far more packages available for small businesses now, with more automatic coverages included,” he notes. Insurers have also improved the efficiency of their business quoting processes by utilizing electronic processing and assigning specialty underwriters to this business segment, Morin observes. “This is good news for brokers. It means a significant improvement in timing and a reduction in non-returns.”

Morin expects rates for commercial and personal lines will show some moderate easing in the months ahead. The key factor on personal lines, he notes, is that the Quebec marketplace was not subject to the auto turmoil seen in Ontario. While auto theft has been a concern, and the incidence thereof in the province remains above Canadian averages, the situation has improved marginally over the past year due to a crack down by the authorities on crime gangs, he adds.

The Quebec marketplace has been presented with two new developments over recent months, Morin says. The first lies in further consolidation of the marketplace – La Capitale Assurances Generales Inc., a direct writer, acquired L’Unique Compagnie d’Assurances Generales, a broker-based company, toward the end of last year. L’Unique wrote only personal lines business before, Morin notes. However, subsequent to its acquisition, L’Unique’s operations have been expanded to cover commercial lines. The most important issue is that La Capitale has kept L’Unique as a broker distribution company, Morin points out, so while the market may have contracted with one less player, for brokers this latest development is beneficial for brokers in having access to a new commercial writer. “It is also very good for brokers in that a direct writer sees the value in going the broker route.”

Secondly, the concentration of business with limited markets, and the fact that many brokerages in Quebec have been prompted by volume pressures to form alliances, has opened the door to a more recent event: government investigation into broker remuneration arrangements and disclosure requirements, Morin says. The province’s brokers are waiting for the release of a report from the regulator in this regard – expected sometime this summer. “We’re not expecting a big ‘bru-ha’ to develop, but there will likely be some regulative changes,” he predicts.

ATLANTIC’S RECOVERY

“The number of markets available to brokers has increased…there were over 60 new broker appointments [made by insurers] last year,” says Stephan Halsall, president of the Insurance Brokers Association of New Brunswick (IBAN). The major change to the marketplace resulted from the auto insurance regulative reforms, which has seen a dramatic improvement in coverage pricing and availability across all territories of the province, he notes. “[Cover] availability is no longer an issue.”

Among the auto regulative measures introduced by the New Brunswick government was the creation of the “First Chance” product – which provides first-time drivers access to lower-than-normal risk-based pricing, and a “no frills” product – aimed at giving consumers basic coverage with the option of “buying up” additional protection benefits. The First Chance product met with tremendous success, Halsall observes, although the claims experience of the collective insurance pool involved is not yet known. On the other hand, the “no frills” product has not attracted much attention due to the $1,000 deductible involved and the scoped back coverage – consumers do not see real value in this option. “The ‘no frills’ product was never expected to take a large part of the market,” he adds.

Overall, the New Brunswick marketplace has undergone significant change – primarily in coverage availability in both personal and commercial lines. The result has produced a huge drop in consumer complaints received by brokers, Halsall says. And, while price reductions have been moderate, “the appetite of insurers has grown across personal and commercial lines…we’re [brokers] just happy not to see price increases on commercial renewals,” he adds.

Bearing in mind the limited period insurers have had in dealing with the auto insurance reform changes (essentially from November of last year), the rapid improvement in market conditions in Nova Scotia – for both personal and commercial lines – has been remarkable, observes Jamie Reid, president of the Insurance Brokers Association of Nova Scotia (IBANS). “The types of questions being received by brokers from consumers has changed from being mostly complaints to general enquiries. Now, it’s a lot easier to answer consumer questions,” he adds.

The main issue now at stake in Nova Scotia is reducing the number of insureds in the high-risk FA market, Reid says. “We’re [Nova Scotia] still the highest percentage at around 8% [in terms of the FA’s marketshare] from all the provinces – but we are already seeing some positive results [in reducing FA’s population].” The driving force behind the FA’s depopulation is a joint initiative recently initiated between IBANS and the IBC in providing a “forum” for brokers and insurers to meet and evaluate their books of business falling into the high-risk category. “We’ve [brokers] managed to achieve some significant concessions from insurers. At least half of brokers [provincially] have already sat down with insurers, and it’s not over.” Reid says IBANS hopes to get the FA’s marketshare down to its norm of about 4% by next year. “We’d be excited to get the level [of FA marketshare] back to that, but it could be even lower,” he adds.

Insurers operating in the province have also begun taking on new commercial business, Reid says, with brokerage appointments rising over the past six months. Most commercial accounts in Nova Scotia tend to be small accounts, he notes, and insurers have responded with new processing tools and coverage package designs to cater for the specific needs of this risk segment.

While the insurance landscape in Nova Scotia has definitely become less stormy since the beginning of this year, there remains the political threat of a government-run auto insurance system being introduced in the province, Reid confirms. The official political opposition party – being the NDP – still supports the concept of state-run auto insurance, he notes, and with the province subject to a minority government, the possibility of an election being called could happen at anytime, he adds. “However, by the next election, we [brokers] don’t expect that auto insurance will be that much of an issue with the public as a result of the market improvements brought into place.”